At its meeting on 13 July, the Monetary Policy Committee voted by a majority of 8-1 to maintain bank rate at 0.5 per cent, with only one member voting for a widely-suspected cut in the bank rate to 0.25 per cent.
The committee also voted unanimously to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375bn.
An explanatory note, stated while initial assessments of the EU referendum’s impact on demand, supply and the exchange rate were made, said: “In the absence of a further worsening in the trade-off between supporting growth and returning inflation to target on a sustainable basis, most members expect monetary policy to be loosened in August.”
Simon Checkley, managing director of mortgage broker Private Finance, said he fully supported the decision to hold off until longer-term Brexit impacts become clearer.
He said: “We anticipate a further review in August once the new economic forecasts are published, where we would expect the committee to cut rates by as much as 50 basis points, achieving a zero percent interest rate, which would be in line with [BoE governor] Mark Carney’s most recent comments about the need for the implementation of monetary easing over the summer.”
The MPC also noted that the vote to leave the EU could still lead to a substantially lower path for growth and a higher path for inflation than in the central projections set out in the May report.
Close Brothers Asset Management’s chief investment officer Nancy Curtin said monetary policy can only do so much. She said: “Clarity over the next prime minister has already soothed markets, and further signs of action should have a similar effect.”
Ben Brettell, senior economist at Hargreaves Lansdown, noted that financial markets reacted with surprise to the decision to hold rates. The FTSE 100 dropped 60 or so points on the news to leave it flat on the day, with sterling being the main beneficiary, gaining more than a cent against the dollar. He added: “To an extent, the bank is guessing, as there has been no hard economic data since the Brexit vote to indicate how bad any slowdown might be.”
Those concentrating on savings were the most dismayed at interest rates being held for a record 84th month in a row.
Calum Bennie, communications manager at Scottish Friendly, commented: “Rates for cash savers are now clearly set to be in the doldrums for the long term, but with the need for people to put money aside for their and their family’s financial future as important as ever, now is the time to consider investing in shares.”
Key facts
At its meeting on 13 July, the Monetary Policy Committee voted by a majority of 8-1 to maintain Bank Rate at 0.5 per cent.
Only one member voting for a cut in the bank rate to 0.25 per cent.
The committee also voted unanimously to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375bn.
